Efficiency of Employment Subsidies and Firms' Recruitment Strategies
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[Extract]In this dissertation we have studied the origins of deadweight loss in employment subsidy schemes. The disagreement between micro and macroeconometric studies of the added value of such schemes in guiding long-term unemployed back to the labour market has been the reason for this research. Microeconometric studies find positive treatment effects for participating long-term unemployed. That is, their re-employment probability improves as compared to similar non-participating long-term unemployed. Consequently, micro studies are positive about employment subsidy schemes. Macroeconometric studies – unlike micro studies – take the overall employment effect of employment subsidy schemes into account and find that employment subsidy schemes hardly lead to additional employment. As a consequence, such studies are more conservative with respect to the role employment subsidy schemes should play in reducing long-term unemployment. Deadweight loss – the share of long-term unemployed the firm would have hired in the absence of the subsidy – is one of the main and most harmful impediments to extending employment as a consequence of introducing the subsidy. In case of deadweight loss, the microeconomic effect (i.e. productivity gain) cannot be attributed to the subsidy, as the employee in question would also have found the job without that subsidy. The same holds for the macro effect (i.e. extending the effective labour supply). In case of deadweight loss, firms would have considered subsidized employees even without the subsidy, which implies they are already part of the effective labour supply.
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978-90-901946-5-3
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Maastricht University
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Maastricht, the Netherlands
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